06-14-2020, 07:42 PM
** 14-Jun-2020 World View: Helicopter money
What happened is so incredible that it's almost beyond belief. Milton
Friedman "proved" that the 1930s Great Depression could have been
avoided if only the Fed had lowered interest rates by a couple of
points. That's a totally ridiculous conclusion, but that's what he
claimed, and both Greenspan and Bernanke believed him.
Alan Greenspan in 1996 knew there was a growing bubble, as indicated
by his "irrational exuberance" speech, but decided it would be better
to deal with it later. As you know, I followed every speech that
Greenspan made for years. In 2004, he said there was a housing
bubble, but it was a good thing, because it meant that households had
more money. In 2005, Greenspan began to get alarmed, but he never
admitted specifically that there had been a housing bubble.
Greenspan was bouncing around like a ping-pong ball in giving various
explanations for the housing bubble. In 2006, Greenspan gave a speech
blaming the housing bubble on the fall of the Berlin wall:
** Alan Greenspan blames the housing bubble on the fall of the Berlin Wall
** http://www.generationaldynamics.com/pg/x...tm#e061025
Meanwhile, Ben Bernanke also believed Milton Friedman's claim that the
1930s Great Depression could have been avoided by lowering interest
rates. He also adopted Friedman's prescription of "helicopter money,"
and the things that you're complaining about are things that he
concluded from Milton Friedman's "proof."
In fact, every central bank in the world has been doing the same
thing, using Milton Friedman's "helicopter money" to save the economy.
It's been 50-60 years since Friedman made his claims. His policies
were put into practice by Greenspan, Bernanke, and many other central
bankers, and all they've done is blow up the global financial bubble
even farther. Now that Friedman has been disproven, you'd think that
the central bankers would give up helicopter money, but they're
trapped, and can't escape, and can only hope that someone else gets
the blame when the bubble bursts.
With regard to your final question, we might say that the Dow will
fall 90%, as it did in the 1930s, no matter what the Dow is at the
time the bubble bursts. That seems like a reasonable assumption, or
at least good approximation, but what's different today from the 1930s
is that the bubble is global, affecting almost every central bank in
the world, and there's no way to tell how that will change things.
(Except that it will certainly lead to a world war.)
That, in fact, is the Law of Mean Reversion.
Higgenbotham Wrote:> I think I understand your (and Vince's) view on the Depression.
> That view is regardless of what the Fed did between the late 1990s
> and now, there will be a Depression and its magnitude will be
> approximately the same, but it will just occur later. Is that
> right? If the target for the ultimate low in the Dow was some
> percentage of the trend line, it remains approximately the same
> percentage of the trend line regardless of how long it takes for
> the Depression to materialize or by what manner and how long the
> Fed holds it off.
What happened is so incredible that it's almost beyond belief. Milton
Friedman "proved" that the 1930s Great Depression could have been
avoided if only the Fed had lowered interest rates by a couple of
points. That's a totally ridiculous conclusion, but that's what he
claimed, and both Greenspan and Bernanke believed him.
Alan Greenspan in 1996 knew there was a growing bubble, as indicated
by his "irrational exuberance" speech, but decided it would be better
to deal with it later. As you know, I followed every speech that
Greenspan made for years. In 2004, he said there was a housing
bubble, but it was a good thing, because it meant that households had
more money. In 2005, Greenspan began to get alarmed, but he never
admitted specifically that there had been a housing bubble.
Greenspan was bouncing around like a ping-pong ball in giving various
explanations for the housing bubble. In 2006, Greenspan gave a speech
blaming the housing bubble on the fall of the Berlin wall:
** Alan Greenspan blames the housing bubble on the fall of the Berlin Wall
** http://www.generationaldynamics.com/pg/x...tm#e061025
Meanwhile, Ben Bernanke also believed Milton Friedman's claim that the
1930s Great Depression could have been avoided by lowering interest
rates. He also adopted Friedman's prescription of "helicopter money,"
and the things that you're complaining about are things that he
concluded from Milton Friedman's "proof."
In fact, every central bank in the world has been doing the same
thing, using Milton Friedman's "helicopter money" to save the economy.
It's been 50-60 years since Friedman made his claims. His policies
were put into practice by Greenspan, Bernanke, and many other central
bankers, and all they've done is blow up the global financial bubble
even farther. Now that Friedman has been disproven, you'd think that
the central bankers would give up helicopter money, but they're
trapped, and can't escape, and can only hope that someone else gets
the blame when the bubble bursts.
With regard to your final question, we might say that the Dow will
fall 90%, as it did in the 1930s, no matter what the Dow is at the
time the bubble bursts. That seems like a reasonable assumption, or
at least good approximation, but what's different today from the 1930s
is that the bubble is global, affecting almost every central bank in
the world, and there's no way to tell how that will change things.
(Except that it will certainly lead to a world war.)
Higgenbotham Wrote:> I also remember a discussion a few years ago where you said that
> the longer the Dow is above the mean reversion line (what I
> referred to above as the trend line), the longer it would stay
> below the mean reversion line in the future in order to balance
> out the area above and below.
That, in fact, is the Law of Mean Reversion.
